Why Do Investors Pay Higher Fees for Sustainable Investments? An Experiment in Five European Countries

134 Pages Posted: 10 Mar 2023 Last revised: 18 May 2024

See all articles by Daniel Engler

Daniel Engler

University of Kassel - Economics

Gunnar Gutsche

University of Kassel - Economics

Paul Smeets

University of Amsterdam

Date Written: May 18, 2024

Abstract

We study why investors are willing to pay higher fees for sustainable investments using large-scale online experiments with individual investors across five European countries. We focus on two potential explanations - investors’ social preferences and limited financial literacy. We find that, across all countries, social preferences significantly contribute to the share of sustainable investments in investment portfolios. However, social preferences do not significantly influence investors’ sensitivity to fees. Instead, financially illiterate investors pay higher fees, because they pay less attention to fees and (wrongly) believe funds with higher expenses outperform after fees. These results have important implications for financial regulation.

Keywords: sustainable investments, experimental finance, financial literacy, cross-country analysis

JEL Classification: G11, G41, G53

Suggested Citation

Engler, Daniel and Gutsche, Gunnar and Smeets, Paul, Why Do Investors Pay Higher Fees for Sustainable Investments? An Experiment in Five European Countries (May 18, 2024). Available at SSRN: https://ssrn.com/abstract=4379189 or http://dx.doi.org/10.2139/ssrn.4379189

Daniel Engler

University of Kassel - Economics ( email )

Nora-Platiel Str. 4
34109 Kassel
Germany

Gunnar Gutsche (Contact Author)

University of Kassel - Economics ( email )

Nora-Platiel Str. 4
34109 Kassel
Germany

Paul Smeets

University of Amsterdam ( email )

Plantage Muidergracht 12
Amsterdam, 1018TV
Netherlands

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